COLE TAYLOR EARMARKING LOANS FOR FINANCIAL-ADVISER BUYOUTS

A Chicago-area bank has become the first financial institution to act on predictions of a wave of consolidations among independent financial advisers.

Wheeling-based Cole Taylor Bank is launching a program to finance buyouts of adviser practices. The initiative is starting in the Chicago area, but could be applied nationwide, especially since Cole Taylor is talking with several large broker-dealers around the country about helping them finance acquisitions by their reps.

In addition, the bank, with 12 branches in Illinois and $2 billion in assets, is interested in helping bankroll acquisitive firms.

The participation for the first time of a financier focused on the investment adviser industry could kick-start the acquisitions that observers believe are only waiting to happen as more advisers age and begin thinking about retirement.

The adviser industry's exponential growth, too, raises questions about whether the ranks soon will need thinning. For example, the number of advisory firms with individuals who have earned the certified financial planner designation has mushroomed 57% in the 1990s, to nearly 32,000 at the end of last year.

Deals today typically are seller-financed, meaning the sellers must take their cash over time, based on the profits of the business after it's sold. Cole Taylor now will offer a way for sellers to get their money upfront, a significant inducement.

"The more that people are able to formalize the (acquisition) process, the easier it will be to do these deals," says Mark Tibergien, a consultant with Moss-Adams LLP in Seattle who specializes in valuing adviser practices. "Seller financing is an inhibitor. In too many cases, the buyer is undercapitalized and the seller doesn't have adequate resources to finance the deals."

While Cole Taylor is talking with brokerages, the loans the bank will make to individual advisers wanting to buy out competitors in their markets are its bread and butter.

The bank has established similar niche loan programs for other consolidating service industries, including dental practices, veterinarians and optometrists.

The dental program in particular has taken off. Cole Taylor has financed deals for more than 300 dentists over the last five years, committing more than $35 million in loans.

She declines to discuss the interest rates the bank might charge, as it still is ironing out details. But, at a minimum, sellers will be required to stay on for a transition period of a year or two to ensure that clients don't flee.

"The fact Cole Taylor is making any kind of commitment to this industry is a significant statement," Mr. Tibergien says. "There just hasn't been enough volume to pique anybody's interest up to this point."

Mr. Tibergien, who performed about 50 adviser valuations last year, cautions that each practice is different, and would-be buyers must account for factors such as the types of clients and the relative security of future income.

Still, Ms. Mossburg is optimistic. "It's an industry ripe for this type of program. But I think it's going to take a few years before it really blossoms."